Oil giants taking Canada to court, Exxon, Murphy filing lawsuits

Oil giants taking Canada to court, Exxon, Murphy filing lawsuits claiming investment conditions for Nfld. offshore projects breach NAFTA by Steven Chase and David Ebner, September 27, 2007, The Globe and Mail
Exxon Mobil Corp. and Murphy Oil Corp. have served notice they plan to sue Canada under the North American free-trade agreement in connection with the Hibernia and Terra Nova oil projects, saying Ottawa is breaking the treaty by forcing them to spend a bigger percentage of research cash in Newfoundland. It’s the latest friction in strained relations between global oil companies and the government of Newfoundland and Labrador over how much they should pay to tap the province’s offshore petroleum riches. The two firms, which are required to give Canada 90 days notice under NAFTA, say they intend to file suits seeking a combined total of $50-million in damages from Ottawa.

At the heart of the dispute are new rules laid out in 2004 by a federal-provincial regulatory board. The companies say these breached terms of NAFTA by increasing their obligations to spend research dollars locally. “[They] thus assure that, regardless of whether there is any commercial need for such expenditures or whether there are sufficient resources in the province to absorb them, investors will have to pay out millions every year,” the companies say in their notices of intent.

Exxon and Murphy both blame Newfoundland Premier Danny Williams’s government for this in their separate notices of intent – documents that are almost identically worded. “In recent years, the government of the province of Newfoundland and Labrador has increasingly taken the view that the [local] benefits plans adopted by the board were inadequate,” the notices say. “The government of the province has increasingly encouraged the board to put in place more robust local content requirements.” One trade law expert speculated the firms may be taking Ottawa to court under NAFTA in order to try to “rein in” the Newfoundland government, which has been very aggressive in setting terms of access to its offshore oil. “If you are a regulated corporation, you don’t typically sue the country that’s regulating you unless you’re strong and powerful enough to get away with it,” said Cassels Brock & Blackwell LLP lawyer Lawrence Herman.

Exxon and Murphy say Canada pledged in 1994 when NAFTA entered into force that it would never increase the so-called local content requirements for offshore projects – or add new restrictions to them. But Exxon and Murphy say that’s exactly what Canada and Newfoundland did in 2004 through the Canada-Newfoundland and Labrador Offshore Petroleum Board. “The guidelines impose new requirements for companies to spend substantially more on research and development than required at the time NAFTA was enacted. These new requirements violate NAFTA,” Exxon Canada spokeswoman Margot Bruce-O’Connell said.

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